McFaddens Solicitors v Chandrasekaran

This is an appeal against a refusal by Master Leslie to award summary judgment to the Claimant solicitor’s firm against the Defendant which decision forms part of an order of 2^nd December 2005. The case comes before me pursuant to permission granted by Mr Justice Eady on 9^th March 2006 following an oral application by Mr Jonathan Harvie QC on 2^nd March 2006, permission to appeal having been previously refused on written application by Mr Justice Nelson on 23^rd January 2006. The matter was argued before me on 23^rd May and I reserved judgment at the close of argument on that day.

The claim is in respect of £444,459.98 in outstanding costs and disbursements and for interests and costs of this action. The fees were incurred in the conduct of an action against Deloitte Touche, the international accountancy firm, for professional negligence. The Defendant in this case, Mr Guru Paran Chandrasekaran is a computer expert and software designer. He ran a company called Indicii Salus Ltd (“ISL”) which was an intellectual property company specialising in cryptographic techniques. The details of the professional negligence action against Deloitte Touche are not important, but the action related to a failure to advise the current Defendant in relation to his affairs and in relation to the affairs of ISL. ISL had various investors but by November 2003 was in receivership and clearly in financial difficulties, as was Mr Chandrasekaran.

Mr Chandrasekaran had previously formed a trust known as the GPC Trust. The Trust was co-Claimant with him in the action against Deloitte Touche. The trustees of the Trust were the Rathbone Trust Company SA, based in Geneva.

By 12^th November 2003, the action against Deloitte Touche was approaching its final stages. Witness statements were due to be filed by 15^th December 2003 and the action set down for trial on 20^th April 2004 in respect of liability only. Deloitte Touche paid £350,000 into court on 7^th November 2003.

A Mr Montague Koppel had become involved in Mr Chandrasekaran’s affairs. Mr Koppel apparently considered Mr Chandrasekaran to be technically brilliant although clearly in need of financial support, and no doubt business advice.

The solicitors with conduct of the action against Deloitte Touche were Kendall Freeman, and the principal solicitor involved with the case Mr Colin Joseph. By early November 2003, a considerable sum was owing in fees to Kendall Freeman and Mr Chandrasekaran did not have the means to pay the bill. This threatened the onward conduct of the action, unless the action was rapidly resolved by acceptance of a payment in or other settlement. Mediation had been attempted and the payment into court was the outcome of those attempts at resolution. Thus it came about that Mr Chandrasekaran was in real difficulties, if he was to reject the payment into court made by Deloitte Touche and pursue his action further.

That sets the context in which Mr Koppel and Mr Chandrasekaran approached the current Claimants. It seems clear that the approach was made at the instigation of Mr Koppel, who was suggesting that McFadden’s solicitors should take over conduct of the action, accompanied by a change of counsel. No specification was made of replacement leading counsel but the suggestion was that Mr Koppel’s son-in-law, Mr Denis Daly, should become replacement junior counsel in the case. A telephone attendance note made on 12^th November 2003 by Mr Timothy Eppel, a partner in the Claimant firm, records the approach being made and the outline suggestions for representation I have touched on above. Between 12^th November 2003 and 5^th December 2003 discussions and negotiations took place on this change of representation and on arrangements for the legal fees for the replacement legal team. They are at the heart of this case. It is not necessary for me to set out every twist and turn of the negotiations, which are in any event recorded in documents bundled between pages 71 and 190 of the Bundle of Evidence before the court. It is common ground that this process involved the lawyers – that is to say the Claimant solicitors and Mr Daly – considering some fairly novel proposals as to their own remuneration.

It was clear to the lawyers that the Defendant Mr Chandrasekaran was impecunious – he could not clear his debt to his previous solicitors without outside help. It was also clear that Mr Koppel wished to help continue the litigation, although of course there is nothing in the papers to suggest his support would be unconditional or open-ended. In summary, the conundrum was to be solved in three ways: Mr Koppel was to inject some money immediately by way of loan to the Defendant enabling previous solicitors to be paid off and enabling the payment of an initial fee to McFaddens; Mr Koppel was also to enable disbursements to be funded; secondly, a retainer letter was drafted stipulating the payment of enhanced fees to the lawyers (although excluding Queen’s Counsel, who would be, but had not yet been, instructed): the retainer letter as the contract for services between client and solicitors is at the heart of the case. Thirdly, the lawyers put forward the proposal that they should be given shares in a new company to be formed with the assistance of and capital from Mr Koppel. Sufficient illustration of the thinking by Mr Eppel and Mr Daly is to be found in the attendance note of 19^th November 2003 at page 85 of the Bundle. This attendance note follows a meeting at Mr Daly’s chambers where Mr Daly and Mr Eppel estimated the time they were likely to spend on the case over the period until the liability trial in the following April. Having calculated the likely number of hours, and the respective hourly rates, they agreed proposed monthly payments over the period until trial which fell short of the amount of fees they expected to incur, and in the words of Mr Eppel’s attendance note “this left £197,000 which we rounded up to £200,000 and agreed that this should be requested in shares to be split equally between myself and DD [Denis Daly]”.

On 25^th November 2003, (Bundle page 91), there was a further discussion on payment:

“TE and DD were keen to finalise the retainer arrangements without further delay. TE explained that, whilst they were prepared to be helpful, the arrangements would have to include either some monthly payments or a payment on account together with some shares in the company once it went forward, in relation to which there was of course a risk.”

Further documents in the Bundle instance the development of ideas both about the retainer terms and about the share entitlements for the lawyers. The draft retainer letter reached its final form by at least 2^nd December 2003 when it was sent to the Defendant Mr Chandrasekaran and to ISL. The draft is dated 28^th November 2003 and in fact it seems likely that there were no material changes from that date until the time it was sent or thereafter. This retainer letter is tailored very specifically to the situation of Mr Chandrasekaran. In particular, the charge-rates both for Mr Eppel and for Mr Daly are specifically recognised to be enhanced by reference to delayed payment:

“2.3

The agreed charge-out rate for a senior solicitor who will deal with matter on your behalf (namely Mr Timothy Eppel) as set out on the attached appendix is recognised as being higher than the usual charge-out rate but takes into account the fact that no further fees will be required from you until after the trial in April 2004 or if the claim is settled beforehand, but in either case the fees will first be collected from the Defendant if there is either a settlement or a judgment in your favour which includes an order for payment of costs in your favour…

…..

2.5

You have agreed that Mr Denis Daly will be retained as junior counsel on your behalf and that his charge-out rate is agreed at £310 per hour, on the basis that he has also agreed not to demand payment of his fees pending either a settlement of the claim or until after the trial in April 2004, it being acknowledged by you that ultimately this firm is professionally obliged to settle counsel’s fees in due course…”

There is no issue but that, on the face of the document, Mr Chandrasekaran was liable for the legal fees even if there was to be a delay before the liability was called in. The Claimants say that is the entirety of the agreement between the parties, that the Defendant has no real prospect of showing any different and that they are entitled to judgment forthwith on the basis on the retainer letter.

The Defendant on the other hand says that the letter was a sham. He says that it was always the case that he would be liable for no more fees, unless he won. It is agreed that at the time of the transfer of instructions to McFaddens, all parties thought there were good prospects in the litigation against Deloitte Touche. In effect, Mr Chandrasekaran says: the lawyers knew I had no money then, but we all thought the action was likely to succeed and if it did, the lawyers would be paid an enhanced rate by me, to the extent at least that their enhanced rate was not recovered in a costs order from Deloitte Touche.

In the course of argument before me, Mr Macdonald QC for the Defendant was driven to acknowledge that if his client’s case is correct, the retainer letter was not merely a “formality” or a dead letter, but a fraud. I should stress that fraud is not pleaded in the case. However, his client’s case is that this letter reads as if his client would be responsible for indemnifying his solicitor if the case was lost, when the opposite was true. If the letter had recited what his client says was the truth, namely that he Mr Chandrasekaran was not liable to pay his lawyers if he lost, then Deloitte Touch would have had a very powerful argument that they should not pay costs even if they lost. Thus the concealment of what Mr Chandrasekaran says was the true arrangement in the retainer letter would be – or at least might be – the means by which costs were obtained wrongly from Deloitte Touche.

Mr Chandrasekaran signed the retainer letter on 5^th December 2003 and delivered it to his lawyers at a conference on 8^th December 2003. The case then proceeded and, as far as I have been made aware either in the evidence or argument, there was no further reference to the terms of remuneration for the lawyers in the course of the litigation.

In parallel with the proposals for payment under the retainer letter, there had been further discussion about the lawyers getting shares, for example in the attendance note of 3^rd December 2003, at page 137 in the bundle. On 4^th December there was a meeting between Mr Eppel and Mr Koppel of which a manuscript attendance note appears in the bundle at page 144. Part of this note reads:

“3/ Equity arrangements. Showed MK revised letter. MK unhappy with 2%. I’ll take 1½%. Better – tell him, no shares coming from PC – MK has said he’ll look after us from his shares because he got us to come in on fee basis agreed.”

Mr Eppel has not addressed this attendance note in any of his witness statements. However, Mr Koppel has. At paragraph 35 of his second witness statement dated 18 November 2005, appearing at page 395/6 of the Evidence Bundle, Mr Koppel tells us:

“I have seen the handwritten note made by Eppel on 4^th December 2003 at page 74 of TDLE2. It is very short and cannot represent the entire conversation. I accept that I may have uttered the words recorded there but I can confirm that there was no agreement reached. This is so vague it could not possibly be regarded by anyone as a binding agreement… It is very much more likely that these were somewhat meaningless words of comfort spoken by me to give some comfort to Mr Eppel as this might be considered in the future; the company was in receivership and its future was uncertain. This issue of a share agreement was thus unworkable and was dropped. It was not discussed again.”

As the Master commented in the course of his judgment in this case, it is extremely unusual to see lawyers considering arranging taking share transfers as part of their remuneration for a case. This is particularly so where the value of the shares may be heavily contingent on the outcome of the litigation in hand. I would be extremely surprised if this is acceptable within the Code of Conduct either for solicitors or barristers. It is also clear that the proposal to make such arrangement was kept going beyond the finalisation of the retainer letter which, as I have noted above, does not appear to have changed after 28^th November. It seems to me there is an irresistible inference that at least in the case of Mr Eppel he went on as far as 4^th December pursuing the prospect of the grant of future equity as a complement to the fee arrangements set out in the retainer letter. It is fair to say that there is no later reference to any such arrangement and that nothing that has been disclosed would be capable, in my judgment, of being a binding agreement for a grant of shares either to Mr Eppel or Mr Daly. It follows that, as far as the evidence suggests it at present, once the retainer letter was signed and returned by Mr Chandrasekaran, there was no further mention of shares to lawyers.

I have set out above the fact that a payment into court was made by Deloitte Touche in November 2003, just at the period when the Defendant was considering changing his legal team. In his defence, drafted by himself whilst unrepresented in April 2005, the Defendant states that by October 2003, encouraged by his former solicitors, he wished to accept an offer of £350,000. This is set out in paragraph 7 of the Defence at page 16 of the Pleadings Bundle. In his first witness statement, dated 4^th November 2005, and made with the assistance of his current solicitors, the Defendant states “my main concern was to get ISL out of receivership and left to myself, I would have settled with Deloitte. I was not left to myself.” paragraph 15, page 328 of the Evidence Bundle. This description of the Defendant’s attitude is specifically in relation to the end of the mediation on 31^st October 2003 and in relation to the ensuing few days. Thus the Defendant’s evidence now is that, left to himself, he would wish to have settled, but was carried along by those around him. The contemporaneous evidence is very different.

On 12^th November 2003, in a telephone attendance note to which I have made reference above, Mr Eppel noted a conversation with Mr Koppel and with the Defendant. At page 72 of the Bundle the attendance note reads “PC says that they have found an internal memorandum of D&T which refers to flaws in the envelope scheme but they never told him about them. But the mediator was Nicholas Prior and he felt that his claim could be worth £1.2 million.” On 25^th November 2003 Mr Chandrasekaran and Mr Koppel were in conference with counsel and with Mr Eppel. An attendance note appears at page 91 of the Evidence Bundle. It reads in part: “The discussion centred around the amount of fees already incurred by Paran with his previous solicitors and the fact that he needs to net £920,000 on the litigation, as he has creditors in excess of £1 million.”

On the same day, 25^th November, the Defendant telephoned Maryla Shingler of Rathbone Trust Company SA (“Rathbone”). It is important to note that Mr Koppel was not part of this conversation. The attendance note reads in part: “PC called. He started by referring to the mediation. D&T had offered £350,000 which, in PC’s words, the mediator thought was a ‘joke’. Based on his experience, the mediator thought that the offer should be between £1.1 and £1.9 [million]. Witness statements are due by 19^th December. However, it is strongly anticipated that by the end of the year some sort of settlement will be reached.”

On 1^st December 2003 a telephone conversation took place between Mr Daly and Mr Eppel which was noted by Mr Eppel at paragraph 112 of the Bundle. In the course of this note, Mr Eppel recorded discussions he had had with the Defendant. He wrote:

“Primarily, Paran had stressed (as he has on each occasion that I have spoken to him) that he is extremely stretched financially and needs to have an early settlement which would net him at least £800,000. I see my role, therefore, as getting into a position where I can have a meaningful settlement discussion with Linklaters sooner rather than later.”

Finally, on 2^nd December 2003, the Defendant wrote to Miss Shingler in the following terms:

“I am writing to update you on the outcome of the recent mediation with respect to the Deloitte Touche litigation. The Defendant had initially offered the Trust £350,000. It is my view, and that of our advisers, that this was a derisory sum and consequently it was rejected. The Defendant has now offered £350,000 plus cost by way of a payment into court; which represents a slight increase on the previous proposal. The next step in the process is the taking of witness statements, which has to be completed by 19^th December 2003. It is felt that there will be much more pressure on the Defendant to propose a more realistic offer once it has seen the strength of the witness statement. It is therefore proposed to proceed to (sic) with this stage.”

In my judgment, the contemporaneous documents show clearly that the Defendant did not wish to settle at or around £350,000 and was perfectly adequately in the “driving seat” as the client, although no doubt in close consultation with Mr Koppel as to how matters should be taken forward. Moreover, conflict between his evidence now and the contemporaneous documents mean that his credibility as a witness could hardly be other than very low. These matters are not peripheral.

The Defendant places reliance on the attendance note of a conversation between himself and Maryla Shingler of Rathbone mentioned above, for another purpose. The attendance note is dated 25 November 2003 and is found at page 355 of the Bundle. The relevant passage reads: “PC mentioned that Marty Coppel [sic] (a renowned South African lawyer and entrepreneur) now owns most of the Indicii Salus assets. MC wants PC to concentrate on the business side of IS and has offered to fund the trial and ‘back the case to the end’ because he believes the case against D&T is strong. MC is prepared to find between £300,000-£400,000 but wants (a) to appoint a Junior Counsel of his choice…and (b) to have a first charge on the funds received by us (if the case is successful) up to the amount contributed by him on behalf of PC during the trial…”.

The Defendant says this is support for his contention that Mr Koppel was going to help fund the action, a point which is not controversial. He also says this is evidence that shows Mr Koppel was going to exempt the Defendant or cause him to be exempted from liability for costs.

I do not see how this document can go that far, or any thing like it. Mr Koppel did pay substantial sums towards these actions, as I have said. However, he never gave the lawyer an undertaking to meet their fees or anything approaching it. He never gave unlimited backing to the action. This attendance note was made more than a week before the Retainer Letter was signed, during a period when negotiations were ongoing. I do not see how this attendance note could ever take a court beyond showing Mr Koppel was prepared to give substantial help.

It is common ground that there is absolutely no contemporaneous evidence to suggest that the retainer letter was a sham or evidencing any agreement exempting Mr Chandrasekaran from liability under the letter. It also appears to be common ground that unless the retainer letter was a sham, the Claimants are entitled to judgment as they claim. Certainly, Mr Macdonald advanced no such argument before me.

Litigation proceeded. The matter was heard at a trial beginning on 21^st April 2004 and judgment was given on 16^th June 2004. The plaintiffs achieved judgment against Deloitte Touche, but were awarded £5 damages. An application to appeal was refused by the trial judge, Patten J, on 2^nd July 2004. An application for permission to appeal was renewed to the Court of Appeal and an appellant’s notice lodged on 23^rd July 2004.

In the course of this application, a schedule of assets and liabilities was disclosed on behalf of the Defendant including a debt to McFaddens then stated to be £401,591. The solicitor Claimants in the current case rely upon this as an acknowledgment of the indebtedness, albeit in a somewhat lower sum than is claimed. It is fair to say that Mr Macdonald makes two points in respect of this: firstly, that if the appeal succeeded, the terms of the retainer letter would apply and the Defendant would indeed be liable to satisfy the McFaddens bill from the proceeds of the litigation. Secondly, Mr Macdonald points out that another of the liabilities in this schedule, which is to be found in the Evidence Bundle between pages 193 and 196, is a liability to “Peters plc” in the sum of £27,624. It is clear that this last is a contingent liability, since it is the sum claimed in unrelated contested proceedings. I therefore place little or no reliance on the contents of this schedule.

Permission to appeal to the Court of Appeal was initially refused on paper on 21^st October 2004. Following a change of legal representation, oral application for permission was granted on 26^th November 2004. The appeal was subsequently compromised with the outcome that Deloitte Touche paid a sum of money, but it seems clear that Mr Chandrasekaran received no substantial benefit.

In the course of these events, on 30^th June 2004 McFaddens wrote to Mr Chandrasekaran asking him to make arrangements for payment of fees, pursuant to the retainer letter of 28^th November 2003. This letter appears at pages 16 and 17 of the Evidence Bundle. In his second witness statement, dated 16^th September 2005 and bundled at pages 45 and following of the Evidence Bundle, Mr Eppel deals with this point. At paragraphs 29-31 of the witness statement Mr Eppel points out that the Defendant did not deny responsibility for payment of fees to his firm, and indeed it is the fact he had not done so up to that point. Mr Eppel says, the Defendant “…persuaded me that it was in our mutual interests for him to be represented both on the application for the stay of execution and also on the appeal, since if he were successful in the latter, there was a significantly higher opportunity of obtaining payment of the fees from Deloittes.” Mr Eppel wrote to the Defendant once more on 6^th December 2004 enclosing the bill of costs. Even at this stage, it appears to be common ground that the Defendant did not suggest he had no liability to the Claimant firm.

The instant proceedings were issued on 10^th February 2005 with particulars of claim dated 9^th February 2005. The Defendant acknowledged service on 24^th February 2005, but his first substantive response was a letter to Master Leslie, as a litigant in person, dated 8^th March 2005, which appears at pages 35/37 in the Evidence Bundle. In the course of this letter, the Defendant makes various points, for example, that the Claimant firm must give credit for amounts received from Mr Koppel or his companies and suggests that he: “…was manipulated (I consider the word is not in any way too strong) at a time of great personal difficulty, into retaining their services, and the manner and circumstances in which they were to be paid via MK’s company.” He goes on to say that: “I do accept that, on MK’s insistence, I retained McFadden’s services. However, I will need time to consider and plead the precise terms of their retainer and the other material facts surrounding it, many of which have not been put in writing.” (emphasis is added).

It will be clear therefore that, even at this stage, the Defendant did not make the simple point, which requires no legal expertise to state: “I was not going to be liable for any legal fees if I lost the case.” This was conceded explicitly by Mr Macdonald on behalf of Mr Chandrasekaran in the course of the hearing. The first time Defendant made this simple point was in his defence served on 15^th April 2005, at a period when he was still unrepresented. In paragraph 11 of the Defence (page 17 of the Pleading Bundle) he states:

“It was very clearly agreed and understood by all concerned at the meeting (and in subsequent conversations and meetings both at my office in Pimlico and DD’s chambers) that in no circumstances, win or lose, would I have personally to repay the costs of McFaddens, except out of money recovered from D and T. The only pay I would provide them would be in the form of some equity, from my portion, when the company came out of receivership. The amount of equity to be granted was not conclusively decided thus at this meeting as it was a question of valuation, which we agreed to leave to a later time and date…”

What are the cardinal points in the story? There is no doubt that the lawyers knew Mr Chandrasekaran was impecunious at the time they agreed to take the case. Of course, all parties thought that the litigation would succeed and at that stage it was clear that Mr Chandrasekaran and his business had the active support of Mr Koppel, an extremely wealthy man. In my judgment, this deals conclusively with the argument advanced by Mr Macdonald that the lawyers had nothing to gain from a retainer letter fixing the Defendant with liability for fees. He had clear financial difficulties and they were acute, but the prospect was of a successful end to the litigation followed by refinancing of his business with Mr Koppel’s help. Mr Chandrasekaran had prospects.

It also certain that there were very remarkable proposals for payment of fees involving share allocations. These were maintained at least by Mr Eppel until after the terms of the retainer letter were formulated and had been sent to the Defendant for signature. However, there is no evidence at all, that active discussion of the share allocation took place after 5^th December 2003 when the retainer letter was in fact signed by Mr Chandrasekaran. Certainly, there was no concluded agreement to this effect.

The retainer letter was clearly tailored to Mr Chandrasekaran’s position. On the face of the agreement, he is liable for these fees. No other argument is advanced save that this letter was a “formality” which did not represent the true agreement for payment of fees between client and solicitor. That is a polite way of saying the agreement was a sham. As I have noted above, if the sham had not been abandoned, and the action against Deloitte Touche had succeeded as the parties anticipated, it would likely have become a fraud.

There is no extrinsic evidence at all that the retainer letter was a sham or that it did not represent the agreement between the Defendant and his solicitor. That case would rest entirely upon the Defendant, and to a very much lesser extent the oral evidence of his wife. I have already indicated that the contemporaneous evidence does not support Mr Chandrasekaran’s picture of the relationships between the parties at around the time of the signature of the retainer letter. The contemporaneous documents suggest that he was an active client who voluntarily rejected the payment into court and had a clear view on a much larger net sum which he wanted, and indeed suggested that he needed to emerge from the litigation. Perhaps most striking of all, the Defendant did not suggest he was not liable for fees when first asked to arrange payment in the summer of 2004, nor indeed when he was first sued and responded to the action in the form of correspondence to the Master in his letter of 8^th March 2005. In my judgment, the Defendant’s statement that

“…I will need time to consider and plead the precise terms of [McFadden’s] retainer and the other material facts surrounding it, many of which have not been put in writing… At least for the moment, I cannot and do not accept that I owe McFaddens anything at all.”

is a very striking distance away from the simple position: “it was always the agreement, despite the letter, that I would be responsible for no fees apart from what might be recovered from Deloitte and Touche.”

This appeal is not a rehearing in the old-fashioned sense. An appeal from the Master’s decision is to be allowed only if I feel the Master’s decision was “wrong” – CPR 52.11(3)(a). The Court of Appeal in Tanfern Ltd v Cameron-McDonald [2000] 1 WLR 1311 have re-emphasised the importance of not interfering with a lower court too readily and here restated the “…generous ambit within which a reasonable disagreement is possible.”, a phrase drawn from the speech of Lord Fraser of Tullybelton in the House of Lords in Gee v Gee [1985] 1 WLR 647 at page 652C.

The question the Master had to determine was whether the “…Defendant has no real prospect of successfully defending the claim…” CPR 24.2(a)(ii). The Master found that the Defendant might successfully defend the claim – was he wrong to do so?

With the very greatest respect to the Master, I believe that he was. Try as I might, I am unable to see how the Defendant could overcome the difficulties I have set out above. In his skeleton arguments and his Supplementary Note Mr Harvie QC for the Claimant solicitors has set out a number of other matters which would be put to the Defendant in any trial on liability. I have not rehearsed all those points here, although it is likely that more of these points would hit home if the matter were tried. In my judgment, those matters I have rehearsed are enough. Even allowing for a generous ambit for reasonable disagreement, I do not see that the Defendant has a real prospect of successfully defending the claim.

I therefore allow the appeal from the order of Master Leslie of 29^th November 2005. The Claimants should have summary judgment pursuant to CPR 24.2 in the sum claimed.